1. Field of the Invention
The present invention relates generally to transaction systems and methods of assessing and rating a consumer engaging in the transaction and, in particular, to a computer-implemented method and system for rating a consumer dynamically and substantially when the transaction is initiated between the consumer and a merchant.
2. Description of Related Art
In order to enable convenient purchases of goods and services by consumers, the financial service industry has developed many alternative payment methods that allow a consumer to engage in a transaction and receive goods and services on credit. For example, such alternative payment methods may include checks, ATM or debit cards, credit cards, charge cards, etc. Prior to the birth of virtual commerce, as discussed below, such payment options provided adequate convenience and transactional security to consumers and merchants in the marketplace. While transactional security may include the security offered by a payment method to the consumer that the purchase event will not result in a breach of personal information, transactional security also offers the merchant or seller the security that fraud will not be perpetrated and that the consumer is not a credit risk.
Virtual commerce and the growth of the Internet as a medium for commerce have placed pressure on the payment options discussed above on both the convenience and transactional security and profitability by the credit issuer. For example, credit cards may be convenient to the consumer but are subject to fraudulent use via theft of the account number, expiration date and address of the consumer. This, in turn, places the credit issuer at risk of offering credit to an uncreditworthy consumer, being the subject of consumer fraud or issuing credit to a consumer in a situation that is otherwise unprofitable to the credit issuer.
Currently, available payment options include significant shortcomings when applied to remote purchasers, such as purchases where the buyer and the seller (that is, the merchant) are not physically proximate during the transaction. Specific examples of remote purchases are mail order, telephone order, Internet and wireless purchases. Further, regardless of the proximity, merchants and credit issuers alike continue to battle the problem of fraudulent purchases. Each new payment option and every new sales channel (in-store, telephone, mail and Internet) have, in turn, spawned innovation on the part of consumers willing to perpetrate fraud in order to obtain goods and services without paying for them.
In recent years, the birth of the Internet commerce industry and the continued growth in mail order and telephone order commerce have pushed the credit card to the forefront of these battles. Typically, merchants are forced to rely on credit cards because it is currently their only option in the remote purchase environment. However, regardless of the type of credit offered, low transactional security is offered to both merchants and consumers. This leads to significant cost for the consumers and the merchants, such as the consumer cost including the impairment of their credit record, the inconvenience of changing all of their credit card accounts and the financial costs in resolving the situation. Merchant costs may include the mitigation of fraud losses, including the cost of incremental labor, hardware and software to implement additional security checks in their sales/order entry software, higher transaction processing expense in the form of discount rates for credit cards and NSF fees for checks and higher fraud charge-offs for undetected fraudulent purchases.
Notwithstanding fraud risks, the credit issuer must take a “leap of faith” in issuing credit to an unknown or relatively unknown customer. Further, assessing a consumer's credit, fraud and profitability risk is performed using minimal information. For example, in the credit card industry, the merchant's “view” is not considered, with the only data considered being the amount of the transaction, the date and the merchant type. Therefore, limited credit assessment is conducted during the transaction. While the credit card industry may perform a more in-depth view of the consumer during the application process, there is no guarantee that the consumer has an increased credit risk at a later date, the credit account has been misappropriated by a third party, or the consumer profitability (affecting the terms of credit) is decreased at a subsequent transaction. This means that the credit card industry merely takes a static snapshot of the consumer, issues credit to the consumer and allows the consumption process to begin.
In the present industry, consumer rating or indexing, while possibly occurring, is technically limited. There is not enough data available to the rater in order to make an informed decision about the transaction in which the consumer is engaged. While some credit issuers have access to a preference engine, such an engine is batch operated, wherein information is gathered, loaded and periodically updated. Therefore, and again, the consumer, who is a dynamically variable credit risk, is only periodically assessed.
These drawbacks and shortcomings in the prior art result in several negative effects. For example, the credit issuer experiences increased financial losses due to their issuance of credit to a risky consumer. This, in turn, decreases consumer confidence in the credit issuer. Further, transactions that are unprofitable may be approved, and transactions that are profitable may be declined. Therefore, there remains a need for a more dynamic consumer rating and indexing system that overcomes these effects and drawbacks.